Urbanization and Economic Development in Mexico

Abstract

The objective of this research is to provide an economic framework for the evaluation of the Mexican urbanization process over the past three decades. As this cannot be done in a static context, the development of a dynamic simulation model is proposed.

The model emphasizes a rural-urban dichotomy giving special attention to rural-urban migration. Urban areas consist firstly of an informal sector, characterized by easy entrance, little technological progress, and flexible wages; and secondly of a formal sector whose main characteristic is rigidity of wages. On the other hand, rural areas are divided into sectors comprising commercial and subsistence agriculture. Migration is a disequilibrium phenomena perceived as a function of expected wage differentials between urban and rural areas. Rural migrants are thought of as searching for formal-sector jobs while being employed in the informal sector, and in this sense, under-employment rather than open-unemployment is emphasized.

Other features of the model are the inclusion of a public sector, whose main role is to channel public funds for the accumulation of capital in both urban and rural areas; and the specification of consumer demand functions. It is believed that the above constitutes a proper framework to evaluate the macroeconomic effects of urbanization, such as changes in production structure, employment levels, distribution of income between urban and rural areas, and changes in demand patterns.